INTERNATIONAL FEDERATION OF ACCOUNTANTS PROMOTING TRANSPARENCY AND THE PUBLIC INTEREST 2002 ANNUAL REPORT International Federation of Accountants 2002 Annual Report Contents 3Message from the IFAC President 4Message from the IFAC Chief Executive 6 2002 Highlights of IFAC Initiatives 12 2002 IFAC Board, Committee and Task Force Members 14 2002 IFAC Service Delivery Standards and Statements Guidance and Publications Facilitation and Networking Assurance Activities Representation of the Accountancy Profession in the Public Interest Communications and Promotion 22 2002 IFAC Financial Statements 37 Auditor’s Report 38 2002 IFAC Member Bodies Message from the IFAC President Tsuguoki (Aki) Fujinuma President, 2000 – 2002 vents that took the world stage in 2002 had In addition to strengthening standard setting, far-reaching effects on the accountancy IFAC considered how it could more directly profession, on investors, on capital markets, influence the quality of services provided by firms Eand on the International Federation of and undertook several “quality” initiatives. IFAC Accountants (IFAC). As corporate and accounting is developing new Statements of Membership failures seized headlines, IFAC redoubled its Obligations, which cover areas such as audit, efforts to ensure the quality of accountancy ethics, education, and quality assurance programs. practices, especially in those areas impacting the Additionally, the IAASB is developing new quality public interest. We did so by focusing on: control standards to be applied at the firm and • Establishing a more transparent and relevant engagement level. standard-setting process; IFAC also focused on how best to serve two • Enhancing accountability through quality growing constituencies: accountants in business control initiatives; and and in small and medium practices. Task forces • Developing resources and guidance to prepare were formed and research was conducted to accountants for new roles and marketplace determine areas where IFAC can support and changes. complement the efforts of member bodies. The IFAC was able to make progress in each of recommendations of each task force will be these areas thanks to the dedication of its Board, considered by the IFAC Board in 2003. diligence of its committees, support of its 155 Achieving another benchmark, the Forum of member bodies, and the hard work of IFAC staff. Firms (Forum) was formally constituted in 2002 In fact, during my two and one-half years as and a separate legal entity was established. IFAC President, I have been impressed by the Finally, IFAC made progress over the past unwavering commitment of so many accountants year on increasing dialogue with regulators, and leaders of the profession worldwide to not financial institutions, investors and others only contribute to the development of their interested in the work of professional accountants profession, but to look for more ways to ensure and the credibility of financial information. These that all professional accountants do their jobs well groups are represented on the IFAC Task Force and with the utmost integrity. I will comment on Rebuilding Public Confidence in Financial briefly on a few areas where progress has been Reporting, established in 2002. made. More details are provided throughout this I am proud to be associated with these report. endeavors and am confident that IFAC, under the With respect to standard setting, we have leadership of the new IFAC President, René Ricol strengthened the processes for the development and the Chief Executive, Ian Ball, will carry them of standards, sought greater input from outside out effectively. stakeholders and, where appropriate, collaborated with member bodies. In March 2002, the IFAC Board officially established the International Auditing and Assurance Standards Board (IAASB), replacing the International Auditing Practices Committee. International Federation of Accountants 2002 Annual Report 3 Message from the IFAC Chief Executive Ian Ball Chief Executive he past year has been one of substantial the emerging needs of the global economy; change for the profession — change that whether those needs relate to information for will help the profession to enhance the value capital markets, accountability of public sector Tit delivers. IFAC, as the global representative of entities to electors, or consistent knowledge on the accounting profession, has a key role in the the part of accountants worldwide. We will need development of meaningful reforms that will to ensure that our standards are responsive to the enable the profession to operate more effectively, many publics we serve. IFAC will be looking for to contribute better to the worldwide economy ways to give external parties greater voice in our and, ultimately, to enhance society’s well-being. processes, working with them to ensure our At the end of my first year as IFAC Chief standards are developed in a fully transparent way Executive, I am able to reflect on both the past and contribute to the public interest. contributions that IFAC has made and how we We also will address the needs that exist in can build on these. In the past, the accounting relation to the accounting profession in emerging profession has been the driving force in the economies, as well as in small- and medium-sized practices, enterprises, and in business in general. Reading the newspaper or watching the news, IFAC will be looking for ways to give it might seem like 2002 was spent enmeshed in accounting scandals…. Yet, for most of the 2.4 external parties greater voice in million accountants represented by IFAC, that our processes, working with them to ensure was not the case. Around the globe, the vast our standards are developed in a fully majority of accountants continued to do their jobs well and to contribute effectively to their transparent way and contribute to the organizations, and to the public interest. public interest. At IFAC, we remained dedicated to strengthening the organization and the profession we serve. To ensure IFAC is well positioned to development of international accounting and address the challenges of the coming years, we auditing standards. It initiated the development of have strengthened the organization in a number standards and pressed for international of ways, a process that will continue in 2003. We convergence. When globalization brought focus have: to the need for standards that apply • Reorganized IFAC’s operations area and internationally, much of the groundwork had appointed a new Director of Operations; already been done, on a voluntary basis, by the • Enhanced the quality of IFAC’s financial accounting profession. These are significant reporting, and improved internal financial achievements and ones of which we should be operations; proud. • Expanded professional staff support for the Looking forward, IFAC will work to ensure International Auditing and Assurance that the standards we set — in auditing and Standards Board; assurance, in ethics, in public sector financial • Increased communications with member reporting and in accounting education — reflect bodies to keep them current on international 4 initiatives and to obtain their input on IFAC that are designed to protect the public interest, strategy; and in communicating financial and other aspects • Modified the IFAC Medium-Term Strategy and of IFAC’s own operations. Action Plan to address some of the immediate Looking ahead, transparency will remain a issues facing the international accounting priority for IFAC. In addition, we will strive for profession; increased efficiency and greater collaboration • Increased contact with the media, giving them with member bodies and other organizations, an international perspective on the profession always with a focus on providing high quality and its wide-ranging roles; and guidance in those areas where we can offer the • Facilitated communications within the IFAC greatest value and best serve the public interest. leadership by updating and streamlining the There are many challenges in the future. But Leadership Intranet used by IFAC’s Board and there is also a solid foundation on which to move committees. forward and grow. I look forward to working The developments of 2002 were not achieved closely with IFAC’s Board, committees, and without a great deal of effort by the IFAC staff — member bodies and to strengthening our I want to acknowledge that and to thank them. In partnerships with those who share IFAC’s 2003, there will be yet more to be done, and the commitment to the development of a worldwide commitment of all staff will be crucial to our accountancy profession that effectively addresses success. the needs of the global economy. IFAC has, in 2002, increased its commitment to transparency in three ways: emphasizing the importance of transparency in the work of auditors, in the development of IFAC standards IFAC Management Team Left to right: Russell A. Guthrie, Director, Transnational Auditors Committee; Ian Ball, Chief Executive; Stephen Walker, Director of Operations; James M. Sylph, Technical Director, IAASB. Photo inset: Paul Sutcliffe, Technical Director, Public Sector Committee. International Federation of Accountants 2002 Annual Report 5 2002 Highlights of IFAC Initiatives Promoting Transparency and the Public Interest was a year of unprecedented change and challenge for the worldwide accountancy profession. It was a year in which accountants’ responsibility for protecting 2002the public interest took center stage. It was a year in which IFAC’s